Article Reposted from Caijing
Issue 30, 2019
INDONESIA. Until six years ago, the residents of Bahodopi District, Morowali Regency, Central Sulawesi lived without any of the ordinary accoutrements of modern living such as electric lighting, televisions or mobile phones. The only sign of modernity in Bahodopi was a couple of dated motorcycles.
However, since the construction of the Tsingshan Holding Group Co. Ltd (“Tsingshan Group”)’s industrial park, the lives of Bahodopi’s residents have been transformed: with power, there are more electric bulbs than fishermen’s fires.
Tsingshan Group is a stainless steel company that was founded in Wenzhou, China’s Zhejiang Province. Two decades ago, the company returned to its roots in Wenzhou after a stint in Shanghai. In 2016, Tsingshan Group became the first privately-owned company in Wenzhou with a turnover above RMB100 billion. In 2018, the company’s turnover reached RMB226.5 billion, winning Tsingshan Group 361st place on the Fortune Global 500.
Xiang Guangda, chairman of the board of Tsingshan Group, explains the decision to build the industrial park in Indonesia: direct access to the country’s rich nickel reserves would insulate the company from fluctuations in international nickel prices and put Tsingshan Group back in control. In 2008, Tsingshan Group rolled out its global strategy. The following year, Tsingshan Group created a joint venture, PT Sulawesi Mining Investment, with Bintang Delapan Group. Sulawesi Mining Investment was then granted extraction rights to 47,040 hectares of laterite nickel ore mining land.
On 2nd October 2013, Shanghai Decent Investment (Group) Co., Ltd. and Bintang Delapan Group signed an agreement to establish the China-Indonesia Economic and Trade Cooperation Zone Indonesia Morowali Industrial Park (“IMIP”), creating a key commercial cooperation project for the two countries. The signing ceremony was witnessed by President Xi Jinping and President Susilo Bambang Yudhoyono.
Occupying an area of 2,012 hectares, IMIP will host a stainless steel production plant with the world’s longest value chain. Once construction is complete, the area will become an important manufacturing base with a total population of 60,000.
Nevertheless, in its early days, the development company faced a barren wilderness: no electricity, water, houses, or roads. There was nothing on which to build the most basic amenities for an industrial park (water supply, sewage, electricity, roads, telecommunications, heating, natural gas or coal gas, and level ground). Chinese business models and experience could not be leveraged at all.
Akurullah, the park’s first Indonesian worker, remembers the earliest days of the industrial park very clearly. “Before, this area was mostly forest. It was really inaccessible – the nearest county-level city was at least three hours’ drive away.” If one travelled along the Pacific coastline by clipper, the journey would take five hours.
According to a Chinese representative for IMIP, an important lesson learned was “to not simply try to duplicate the models used for industrial park development in China.” IMIP required a return to the drawing board: gradually, the park built its own power plants, water treatment and sewage systems, seaport and airport.
As the park’s infrastructure was laid down, investment was sought from leading businesses from different industries, who then took on some of the risk and benefitted from the development of the park. IMIP relied on local labor and quickly adapted to Indonesian labor practices.
Given its humble beginnings, how did IMIP manage to take shape in just five years? Halim Mina, chairman of PT.IMIP, the development company for the park, revealed an important external factor: the project had easy access to mid- and long-term financing.
When the project was in its earliest days, policy banks including China Development Bank, the Export–Import Bank of China, and state-owned Chinese banks including Bank of China pitched in with mid- and long-term financial support.
As the construction of the park progressed, particularly with various steel-related projects entering production, HSBC partnered with Tsingshan Group on several projects. HSBC Indonesia structured a loan solution specifically for the park, including trade finance-related working capital loans and accounts receivable services, resolving the problem of guarantees for loans. HSBC was the first foreign bank to work with Tsingshan Group on the project. Frank Fang, Executive Vice President and Head of Commercial Banking at HSBC China, explains that the Indonesia project collaboration leveraged the ties previously forged between Tsingshan Group’s headquarters and HSBC. HSBC China’s commodities finance team analyzed Tsingshan Group’s industrial profile and swiftly extended a comprehensive credit line to the group covering not only its Indonesian business, but also India, Singapore and Hong Kong.
After six years of development, IMIP now directly employs close to 35,000 Indonesian workers. The park has also indirectly created opportunities in business, services, and real estate, and has propelled local industrialization. IMIP has become a globally-significant base for nickel extraction and metallurgy and stainless steel production, and is one of the key early returns on the BRI.
Akurullah may not understand the full significance of the BRI, but he is more than aware about how IMIP, which is a BRI project, has changed his life. “My income here allows me to support my family. This is my home now.”
Another Indonesian employee at the park, Elvina, was asked by her friend why she resigned from a steady job at a company in Jakarta and came to such a faraway place to work. “At my old company, my career had stalled. The industrial park is different – there are many opportunities to train and learn new skills here. It’s good for my professional development and personal growth, which are exactly what I need.”
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